497 (k) (1) (ii)
PROFILE
FRANKLIN
SMALL CAP
GROWTH FUND
INVESTMENT STRATEGY
GROWTH
SEPTEMBER 1, 1998
FRANKLIN STRATEGIC SERIES
THIS PROFILE SUMMARIZES KEY INFORMATION ABOUT THE FUND THAT IS INCLUDED IN
THE FUND'S PROSPECTUS. THE FUND'S PROSPECTUS INCLUDES ADDITIONAL INFORMATION
ABOUT THE FUND, INCLUDING A MORE DETAILED DESCRIPTION OF THE RISKS ASSOCIATED
WITH INVESTING IN THE FUND THAT YOU MAY WANT TO CONSIDER BEFORE YOU INVEST.
YOU MAY OBTAIN THE PROSPECTUS AND OTHER INFORMATION ABOUT THE FUND, AT NO
COST BY CALLING 1-800/DIAL BEN (1-800/342-5236), BY VISITING OUR WEBSITE AT
WWW.FRANKLIN-TEMPLETON.COM, OR FROM YOUR INVESTMENT REPRESENTATIVE FROM WHOM
SHARES OF THE FUND MAY BE PURCHASED. THIS PROFILE DESCRIBES THE FUND'S CLASS
I AND CLASS II SHARES.
FRANKLIN SMALL CAP GROWTH FUND
FRANKLIN STRATEGIC SERIES
1 WHAT IS THE FUND'S GOAL?
Franklin Small Cap Growth Fund seeks long-term capital growth.
2 WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
PRINCIPAL INVESTMENTS. The fund invests primarily in
common stock equity securities of small capitalization ("small cap") growth
companies, which have market cap values (share price times the number of
common stock shares outstanding) of less than $1 billion. The fund will try
to invest at least one-third of its total assets in companies with market cap
values of $550 million or less, but may not find suitable companies. Equity
securities also include preferred stocks, securities convertible into common
stocks, and warrants for the purchase of common stocks.
OTHER INVESTMENTS. The fund may also invest a smaller
portion of its assets in equity securities of larger growth companies.
Although the fund's policies permit greater investment, currently, the fund
will not invest more than 10% of its total assets in foreign securities,
including those of developing markets issuers. The fund may also invest, to a
limited extent, in real estate investment trusts, in illiquid securities, and
engage in other investment strategies. The fund may invest in cash or
short-term investments for liquidity or, without limit, for temporary
defensive purposes.
PORTFOLIO SELECTION. The manager will choose small cap
companies that it believes are positioned for rapid growth in revenues,
earnings or assets, and that it can acquire at a price it believes to be
reasonable. The manager looks for companies it believes exhibit leadership in
growing markets or have distinct and sustainable competitive advantages, such
as a particular marketing or product niche. The manager strives to avoid
overly speculative issues, such as those based on unproven technology. The
manager uses a disciplined "bottom up" approach to stock selection, blending
fundamental and quantitative analysis. The manager diversifies the fund's
assets across many industries, and from time to time may invest substantially
in certain sectors, including technology and biotechnology.
FOR MORE INFORMATION ABOUT THE FUND'S INVESTMENTS, PLEASE REVIEW THE FUND'S
MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. IN THE FUND'S
ANNUAL REPORT YOU WILL FIND A DISCUSSION OF MARKET CONDITIONS AND INVESTMENT
STRATEGIES THAT SIGNIFICANTLY AFFECTED THE FUND'S PERFORMANCE DURING THE LAST
FISCAL YEAR. YOU MAY OBTAIN THESE FREE REPORTS BY CALLING 1-800/342-5236.
3 WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The main risks, affecting the value of the fund's shares, are those common to
all managed smaller company stock investments.
STOCKS. Common stocks and other equities represent
ownership interests in individual companies. Stocks tend to rise and fall
more dramatically than other asset classes over the shorter term. These price
movements may result from factors affecting individual companies, or factors
affecting the securities market as a whole. Growth stock prices reflect
projections of future earningsor revenues and can, therefore, fall
dramatically if the company fails to meet those projections.
SMALLER COMPANIES. Historically, smaller company stocks
have generally experienced greater price swings than, and have fluctuated
independently from, larger company stocks. Smaller or relatively new
companies can be particularly sensitive to changing economic conditions, and
their growth prospects are less certain than those of larger, more
established companies. For example, smaller companies may have limited
financial resources, product lines or market share; they may lack depth of
management; they may be in new industries; or they may not find an
established market for their products or services, or their products or
services may become quickly obsolete. Small cap companies may suffer
significant losses and investments in these companies may be speculative. In
particular, smaller companies in the technology or biotechnology industries
can be subject to abrupt or erratic price movements.
MANAGEMENT. Individual and worldwide stock markets,
interest rates, and currency valuations have both increased and decreased,
sometimes very dramatically, in the past. These changes are likely to occur
again in the future at unpredictable times, and the manager may not correctly
anticipate or respond to these changes.
In addition to the main risks, the fund's investments in foreign securities,
particularly those of developing markets issuers, involve special risks
including changing currency values which increase or decrease the fund's
returns from its foreign portfolio holdings, and social, political, and
economic uncertainty.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. YOU MAY LOSE MONEY BY INVESTING IN THE FUND; YOUR
INVESTMENT IS NOT GUARANTEED.
PAST RESULTS
The bar chart and table show the historical variability (or volatility) of
the Small Cap Fund's returns on a year by year basis, and its average annual
total returns compared to a broad-based securities index. They may provide
some indication of the risks of investing in the fund. Of course, past
performance cannot predict or guarantee future results. Moreover, this has
been a period of generally rising securities prices, which may not be
sustained in the future.
FRANKLIN SMALL CAP GROWTH FUND - CLASS I
CALENDAR YEAR TOTAL RETURNS*
1993 - 1997
GRAPHIC MATERIAL OMMITTED.
THE FOLLOWING IS A NARRATIVE DESCRIPTION OF THE GRAPHIC MATERIAL PURSUANT TO
ITEM 304(A) OF REGULATION S-T:
This chart shows on bar format the annual total returns for the Franklin
Small Cap Growth Fund - Class I for the years 1993 through 1997/
Calendar Year Total Returns*
1993 21.77%
1994 9.22%
1995 42.20%
1996 27.07%
1997 15.78%
BEST QUARTER Q2 `97 +18.69%
WORST QUARTER Q1 `97 -9.12%
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Since Inception
PAST 1 YEAR PAST 5 YEARS 2/14/92
<S> <C> <C> <C>
Franklin Small Cap Growth Fund - Class I** 7.32% 22.42% 19.37%
Russell 2500*** 18.10% 17.30% 16.15%
S&P 500*** 30.16% 23.08% 20.18%
Since Inception
PAST 1 YEAR PAST 5 YEARS 10/2/95
- ------------------------------------------------------------------------------------------------
Franklin Small Cap Growth Fund - Class II**** 10.92% N/A 17.01%
</TABLE>
All figures assume reinvestment of dividends and capital gains. Past expense
reductions by the manager increased returns.
*Sales loads are not reflected in the bar chart returns; if they had been
reflected, returns would be lower. The year-to-date return as of June 30,
1998 was 6.06% for Class I.
**These figures have been restated to reflect the current, maximum 5.75%
initial sales charge; thus actual returns may differ. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge.
***Source: Standard & Poor's Micropal. The Standard & Poor's(R) 500 Stock Index
(S&P 500(R)) is an index of widely held common stocks, whereas the Russell 2500
Index(R) is an index of 2,500 companies with small market capitalizations.
Please remember one cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
****These figures include the 1% initial sales charge and 1% deferred sales
charge to the extent applicable. Class II shares have higher annual fees and
expenses than Class I shares. 4
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table is designed to help you understand the costs of investing in the
fund. It is based on the historical expenses of each class for the fiscal
year ended April 30, 1998. The fund's future expenses may vary.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS I CLASS II
<S> <C> <C>
Maximum Sales Charge (Load) (as a percentage of Offering Price) 5.75% 1.99%
Paid at time of purchase 5.75% 1.00%
Paid at redemption None* 0.99%**
</TABLE>
See Item 6, "How do I Buy Fund Shares?" and Item 7, "How do I Sell Fund
Shares?" below for an explanation of how and when these sales charges apply.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<S> <C> <C>
Management Fees 0.46% 0.46%
Distribution and Service (12b-1) Fees+ 0.25% 1.00%
Other Expenses 0.18% 0.18%
Total Annual Fund Operating Expenses 0.89% 1.64%
</TABLE>
EXAMPLE
This Example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Your actual costs may be higher or
lower. This is not a representation of past or future expenses. You would pay
the following expenses on a $10,000 investment, assuming a 5% annual return
and sale of your shares at the end of each period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------
Class I $661++ $843 $1,040 $1,608
Class II $363 $612 $ 983 $2,024
For the same Class II investment, you would pay projected expenses of $265 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
*Except for (1) purchases of $1 million or more that you sell within one
year, and (2) purchases by certain retirement plans made without a front-end
sales charge.
**The charge is 1% of the value of shares sold or the net asset value at the
time of purchase, whichever is less. The number in the table shows the charge
as a percentage of offering price. While the percentage is different
depending on whether the charge is shown based on the net asset value or the
offering price, the dollar amount you would pay is the same.
+Because of the 12b-1 fees, over the long term you may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
++Assumes a contingent deferred sales charge will not apply.
5 WHO ARE THE FUND'S INVESTMENT ADVISER AND PORTFOLIO MANAGERS?
The fund is managed by Franklin Advisers, Inc. ("Advisers"). Together,
Advisers and its Franklin and Templeton affiliates manage over $236 billion
in assets. Franklin Templeton is one of the largest mutual fund organizations
in the United States. Edward Jamieson, Senior Vice President of Advisers
since 1987, and Michael McCarthy, Portfolio Manager of Advisers, since 1992,
have been responsible for the day-to-day management of the fund's portfolio
since inception and since 1993, respectively.
6 HOW DO I BUY FUND SHARES?
To open your account, contact your investment representative. The minimum
initial investment is $1000. The minimum additional investment is $50. Lower
minimum investment amounts may be applicable to certain accounts. WE RESERVE
THE RIGHT TO REFUSE ANY ORDER TO BUY SHARES.
Currently, the fund does not allow investments by Market Timers, including
market timing or asset allocation services, or any person or group whose
transactions include frequent or large exchanges.
Each share class has its own sales charge and expense structure. See Item 4,
"What are the Fund's Fees and Expenses?" above. Determining which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your investment representative. Generally, you should
consider buying Class I shares if you plan to hold most of your shares for 6
years or more, or if you qualify for a reduced sales charge. A sales charge
may apply when you purchase shares, and as indicated below, the charge may be
reduced for larger purchases.
AMOUNT OF PURCHASE AT OFFERING PRICE TOTAL SALES CHARGE AS A PERCENTAGE OF
OFFERING PRICE
CLASS I
Under $50,000 5.75%
$50,000 but less than $100,000 4.50%
$100,000 but less than $250,000 3.50%
$250,000 but less than $500,000 2.50%
$500,000 but less than $1,000,000 2.00%
$1,000,000 or more None
CLASS II
Under $1,000,000 1.00%
Reductions of Class I Sales Charges
The following programs may help you qualify for a reduced Class I sales
charge:
Aggregation (with other investments in Franklin Templeton Funds*)
You may aggregate your current purchase with existing investments in
Franklin Templeton Funds made by you, your spouse, your children and
grandchildren under 21, and if you are the sole owner of a company, you may
add the company accounts and retirement plan accounts. Companies may
aggregate the plan assets of retirement plans.
Letter of Intent
You may commit to investing a specified dollar amount during a 13 month
period.
Group Purchases
Qualified group members may aggregate the dollar value of existing
investments with the amount of the current purchase.
Waivers of Class I Sales Charges
If your purchase falls within one of the categories listed below, you may
qualify for a waiver of Class I sales charges.
Distributions, Payments and Redemption Proceeds from Franklin Templeton Funds
that may be reinvested without a sales charge within 365 days of their
payment date:
Distributions and redemption proceeds (if you paid a sales charge at
the time of purchase) reinvested in the same share class (also applies
to Class II shares); distributions from a REIT investment sponsored or
advised by Franklin Properties, Inc.; annuity payments; retirement plan
distributions; redemption proceeds from a repurchase of shares of
Franklin Floating Rate Trust, if the shares were continuously held for
at least 12 months; and redemption proceeds from the Templeton Global
Strategy Funds - Class A shares (for qualified investors).
Eligible Institutions and Individuals
Trust companies and bank trust departments agreeing to invest at least
$1 million of client assets over a 13 month period; eligible
governmental authorities; broker-dealers, registered investment
advisors or certified financial planners engaged in comprehensive fee
programs; registered Securities Dealers** and affiliates for their
investment accounts only; accounts managed by Franklin Templeton
Group;*** unit investment trusts and their holders reinvesting
distributions; group annuity separate accounts offered to retirement
plans; and Chilean retirement plans.
*Franklin Templeton Funds include all U.S. registered mutual funds in the
Franklin Templeton Group of Funds except for dedicated insurance funds.
**Securities Dealers include any financial institution that, either directly
or through affiliates, has an agreement with Franklin Templeton Distributors,
Inc. to handle customer orders and accounts with the fund.
***Franklin Resources, Inc., a publicly owned holding company and its various
subsidiaries.
7 HOW DO I SELL FUND SHARES?
You may sell or exchange your shares by sending us written instructions which
include your account number, dollar amount or number of shares you wish to
redeem, and each owner's name and signature; or by calling 1-800/632-2301.
For your and the fund's protection, we may request, for example, additional
information, signature guarantees, or impose limits on phone redemptions.
Once we receive your instructions, we will redeem your shares at net asset
value as next determined by the fund, less any applicable redemption
charges. A contingent deferred sales charge of 1% of the lesser of (i) the
value of shares sold, or (ii) net asset value at the time of purchase, may
apply to Class I purchases of $1 million or more if you sell the shares
within one year, and may apply to any Class II purchase if you sell the
shares within 18 months. We may waive the deferred sales charge under certain
circumstances.
The sale or exchange of shares in the fund is a taxable event, and you will
generally have a capital gain or loss.
8 HOW ARE THE FUND'S DISTRIBUTIONS MADE AND TAXED?
Whether you receive them in cash or additional shares, the fund's
distributions will be taxable to you as ordinary income and capital gains.
Ordinary-income dividends are generally distributed to shareholders
semiannually in June and December. Any capital gains are generally
distributed annually, usually in December. The rate of tax on capital gain
distributions will depend on whether your individual, marginal income-tax
bracket is 15% or 28% and higher. Your distributions will be automatically
reinvested in the fund unless you select another distribution option. See
Item 9, "What Other Services are Available from the Fund?" below.
9 WHAT OTHER SERVICES ARE AVAILABLE FROM THE FUND?
DISTRIBUTION OPTION: You can choose to have
your distributions mailed to you in cash, or automatically reinvested into
your account or into another Franklin or Templeton fund account within the
same class (generally without any additional sales charges). Your
distributions will automatically be reinvested in your account unless you
select another option.
EXCHANGE PROGRAM: You can exchange shares between most
Franklin and Templeton funds within the same class, usually without any
additional sales fees. Market Timers may be charged an exchange fee. Some
funds do not allow Market Timers. We reserve the right to modify or withdraw
the exchange privilege.
AUTOMATIC INVESTMENT PLAN: The Automatic Investment Plan
lets you automatically transfer monthly investments of $50 or more from your
checking account to your fund account.
Systematic Withdrawal Plan: The Systematic Withdrawal
Plan lets you receive checks for a fixed amount from your account on a
regular basis.
RETIREMENT PLANS AND OTHER PROGRAMS: We offer retirement
plans, including IRAs and Business Retirement Plans, such as 401(k) plans.
TELEFACTS(R): Franklin Templeton's automated customer
telephone system available around-the-clock, 1-800/247-1753.
THE BEST INVESTMENT MAY BE AN INVESTMENT REPRESENTATIVE
Many investors feel overwhelmed by the sheer volume of investment choices
available today. An investment representative can help you define your needs
and narrow the search for investments that can help you meet your unique
financial goals. The guidance and advice of an experienced professional can
prove invaluable as you put together a specific investment plan to meet your
individual needs.
YOUR REPRESENTATIVE IS:
Franklin Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
Class I Class II
Franklin Fund #0198 Franklin Fund #298
NASDAQ: TEPLX NASDAQ: TEGTX
NASDAQ: FRSGX NASDAQ: FRSIX
CUSIP: 354713 109 CUSIP: 354 713 802
UPD 11/98 198 PP 9/98
